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Analysis of social and environmental risk in credit operations

Banco Santander considers social and environmental issues to be key in risk analysis and decision-making processes for its financing operations.

Equator Principles

The Bank has implemented processes to identify, analyse and evaluate credit operations governed by Group policies that are based on the Ecuador Principles, to which the Bank has been a signatory since 2009 after the approval of the board of directors.

The Bank's migration in 2014 towards the new obligations arising under the updated Equator Principles III (EPIII) has required to redefine its internal detection and analysis processes for the transactions.

In addition, and as a direct result of the broader universe of transactions now subject to EPIII, the Bank has prepared an e-learning course, which close to 3,000 employees must complete.

The Banking Environment Initiative (BEI), launched in 2010, is a group of international banks convened by the Chief Executives of its members to identify ways to collectively direct capital towards environmentally and socially sustainable economic development. Santander was one of the founding members. Following two years of extensive collaboration with the Consumer Goods Forum (CGF) and with the NGO World Wild Fund (WWF) advice, BEI launched the Soft Commodities Compact, a client-led initiative that aims to mobilize the banking industry to help transform soft commodity supply chains, thereby helping corporate clients to achieve zero net deforestation by 2020. In 2014, Banco Santander adhered to the Soft Commodities Compact.

In 2015, and as part of the efforts towards the implementation of the commitments from the Soft Commodities Compact, Banco Santander reviewed and extensively overhauled its sustainability policies. Among other themes these include the soft commodities policy, which incorporates products such as palm oil, soy, wood and livestock. Santander soft commodities policy prohibits financing certain activities and establish restrictions for others. During that same year, in order to raise awareness of and disseminate the policies, employees from Risks, Compliance, Business and Communications along with the Group's Management Committee attended a session run by an external advisor.

In 2016, the Group introduced further measures to improve its management and processes to comply with the Soft Commodities Compact. Among other initiatives, a training course was given by external experts aimed at those areas involved in implementing policies in sensitive sectors, such as energy and soft commodities. Guidelines and other related supporting documents were distributed. A total of 440 students participated in the course.

In order to implement these policies in the various local units, social, environmental and reputational risk task forces were created in the main geographical areas in which Santander operates. These task forces, which are made up of representatives from different areas of the Bank, are replicas of the corporate Task Force created in 2015. These task forces also enable local knowledge to be shared, thus generating added value for the Bank.

Further to this and, in order to ensure that policies remain relevant to changes in the sectors, Santander sustainability policies are reviewed, annually.